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Market Analysis: May 06, 2005

posted on May 6, 2005

Grain prices reflected that pressure despite some positive news on the export front. For the week, nearby wheat futures dropped by 9 and a half cents. May corn fell by 4 and a quarter cents.

For the week, May beans were up by just over 15 cents. The nearby meal contract up 90 cents per ton.

Export sales for cotton hit a marketing year high, but price didn't ascend with it. The May contract dropped $4.21 from a week ago.

In livestock, the June cattle contract was down 57 cents. Nearby feeders advanced $1.25. And the May lean hog contract crept up 20 cents.

In the financials, Comex gold lost $9.20 an ounce. The Euro fell 28 basis points against the dollar. And the CRB Index declined 2.14 points to close at 301..

Here now to lend us his insight on these and other market trends is one of our regular market analysts, Doug Hjort. Welcome back.

Market Analysis: May 06, 2005 Pearson: ...these and other market trends one of our regular market analysts, Doug Hjort. Well, Doug, we're into May. Typically it's time when the markets are rising as farmers are in the field, especially for corn and soybeans, certainly the case in soybeans this last week. It's a pretty impressive gain.

Hjort: Yeah, it was especially up to the end of last week. The market was under a lot of pressure. It started out that way this week as well and then came back especially with the strong close on Friday. The market is trailing technical more than anything else, however. As a matter of fact, the Friday gain I'm told was from breaking through long-term resistance levels and hitting by stops and running up late in the day. And yet the rally over the week before looks pretty good. Now, you put it on a weekly chart and you're just going sideways and have been for a month or maybe five weeks now after the big rally we had during the winter.

So, the fundamentals are still bearish on the soybeans. They tell me that the big speculators, funds and so on, are not willing to sell the soybean market down as hard as they have the grains just because of fear or the possibility that the Asian Rust might come in and create some serious problems this summer. I think on the oil seed side, you know, we are faced with this huge all-time record high carryout of the current year that we're in now. So, as we go into next year it's going to be very difficult to have demand rise enough to eliminate that huge surplus unless we have sharply lower production somewhere. At this stage of the game it doesn't look that way. It looks like we'll get our soybean crop in the ground and South America most likely will add more acres next year as well.

Pearson: With that carryout that you mentioned, which seems to be in pretty strong hands, we haven't seen the farmer selling like we maybe thought we would at this stage of the game. What would you tell a producer in terms of making sales?

Hjort: Well, I think prices where they're at on Friday's close is probably a pretty good spot to make a sale. When you look at where we closed you've got about fifteen cents give or take a penny depending on the chart you're looking at up to the next major resistance level. And especially if we get that next week that would be a good sell point for old crop. As far as new crop goes that probably would be a good time for that too although I think there is enough uncertainty left right now in the new crop, not just here but around the world that selling at this price level is probably not warranted.

Pearson: Okay, so not in a big hurry to make those new crop sales?

Hjort: No.

Pearson: Doug, as you look at what has been happening as far as we've had the trade talks and trade discussion and so forth, does the market seem to still be nervous about Asian soybean rust and what could happen there and obviously weather is something that typically gives us an opportunity to make some sales later on. That is where you'd step in and start making some sales?

Hjort: Yes, I would. And you talk about weather, there has been a dry spell over the last five weeks or so. Yes, there is plenty of ground moisture in most places to get the crop started but rainfall in the plains and part of the Western Corn Belt has only run about 50% of normal over the last five weeks. It's not a problem right now but if that trend continues on through June as you do sometimes going through these three month weather cycles you could get pretty dicey by the time you get up towards July and see some higher temperatures.

Pearson: Let's talk about this corn market. It's been a real sideways affair, for the most part a little softer this week. What do you tell a producer, a corn producer right now? Do you want to make some sales? Are there enough positives out there that you want to hang onto some old crop?

Hjort: Well, the positive would be on the demand side but I don't know that that positive is strong enough to overcome the supply side bearishness. Ending stocks, of course, for the old crop are predicted to be well over 2 billion bushel, 2.3 maybe 2.4. Now, recently in the last few weeks we've had some pretty good export activity but export sales have been declining in the last two weeks. So, you know, you get a bubble here and then it slows down again and that is typical of what has happened all year long. So, even if you do come in and do a better job and increase export sales during the summer months we're still going to wind up with a very plentiful supply of the old crop. And the new crop is getting planted on time, maybe it will be a little ahead of normal. There is some replant going on in the corn around because it was in too early, frost damage and so on. But usually that is a pretty small percentage of the total and with the warmer temperatures now and get some rain on it a lot of those crops will recover in good shape.

It's going to be a tough, tough battle to try to get corn prices much higher. This week we broke to new contract lows on the futures charts. So, now Friday's high was the support level before and now that is resistance. So, trying to break through that is a task we have ahead of us for next week and maybe the following and if farmers are not big sellers, which they have not been sellers, maybe we can push back up through that but it's going to be very difficult to get corn prices to rally very much.

Pearson: Basis levels have hung in there pretty good for corn.

Hjort: Well, they sure have and, of course, that is a direct result of lack of selling. Demand is strong enough, of course, to take away whatever sales were made earlier on the big rallies, not terribly big on the corn but the rally we had back in February. So, those supplies are running a little bit short both in domestic market and the export market so basis is improving and at the Gulf too to satisfy the export demand. But actually when you look at all that that may not be enough to pull the futures market up very much either.

Pearson: Alright, let's talk about this wheat market. We talked earlier in the show about the fact that the wheat crop looks awfully good. Its not a big crop in terms of acres but it seems like the quantity is going to be there.

Hjort: It looks like a good crop this year. The ratings each week now in the last three have been coming down some on the winter wheat crop, primarily the hard red winter wheat crop, Texas, Oklahoma and Kansas. The crop tour as pointed out earlier 420 million bushels in Kansas, that is a big crop, not a record by any means but good average, good solid average crop anyway. They did find, though, that there were some dry spots in Kansas. And, again, I come back to this business of the short rainfall that we have seen over the last month or so especially out in the plains. That could become a serious matter. I would point out that these early estimates on wheat are not very good. We usually come way above or way below these early estimates. In the case of the Kansas wheat tour in recent years more times than not the actual production has come in higher than this tour. But, of course, weather over the next two months will determine that. I would watch this weather pattern pretty carefully on the wheat. I don't want to be a seller right now of new crop wheat. But watch this weather pattern and if it looks like they're going to get some good rains there in the next couple of weeks I probably would sell something for off the combine otherwise hang onto it for price advancement after the harvest is over.

Pearson: Real quick, Doug, on this cotton market we saw a big pullback this week.

Hjort: We did, the market had rallied nicely over the winter and got up to some reasonable levels and then really took quite a hit. The cotton market, as you look ahead to the new year it looks like production is predicted to be down some worldwide, maybe not enough to consume all of the extra supply we have on hand. So, on rallies back towards the highs we saw two or three weeks ago I'd be a willing seller of cotton, old and new.

Pearson: Let's talk about livestock, fed cattle market still there is so many variables going on in terms of trade with Canada, the situation there, the situation with Japan still boils down to a very small cow herd and has been fairly decent demand despite these strong prices.

Hjort: Well, that's right, beef demand is very, very good and when you look at the supply, if we have to just live with our own production cow herd like you say we don't have enough beef around and we would keep prices up here for fat cattle in the 90+ area. When you look at cash prices this week we had bubbled up two or three weeks ago up to around 95 and then eased back each week since. And this week 90, maybe a scratch 91 out there. Producers don't like that when they had the opportunity to sell at 95 and now it's 90 but I think they still need to keep poking away at it and sell as the cattle are finished. They've been doing a pretty good job of that and not letting their feedlot inventories get too large. But that is the key to this market, you've got to stay right in there and keep on selling.

Pearson: The feeder cattle market has been extremely strong, we talked about that earlier, let's talk about the hog market. Doug, the minute or so that we have, pork producers we thought this might be a little bit softer year, we have heard about increased production. What is your take on what is going to happen with hogs in 2005?

Hjort: Well, I'm still looking for some sort of a break to come here in this market but it doesn't come. As a matter of fact I've eaten some hedges as a result of that. But the market looks a little bit soft when you look at the futures market it's down on rock bottom support levels right now again and if they should give away next week we could drop five bucks out of the futures very quickly. But the cash market is just the opposite and pork cutout values are high. So, the cash market is good but again the same advice sell those hogs as soon as they are finished.

Pearson: Absolutely, stay current. Always great advice, Doug Hjort, thank you so much. That will wrap up this edition of Market to Market. But if you'd like more information from Doug on where these markets are headed then check out our streaming audio at the Market Plus page on our Market to Market Web site. And be sure to join us again next week when we'll see how a stretch of decent weather in the grain belt has thrown spring planting into high gear. Until then thanks for watching, I'm Mark Pearson, have a great week.

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